Far from the emotions that frequently strike the general public, one piece of news caused alarm—or created a sigh of relief—among financial intermediaries. The decision’s impact is unpredictable—it’s not official, but it is certain—which was to postpone the implementation of an international bank payments system denominated in renminbi. In fact, China postposed the adoption of the much anticipates CHIP (China International Payment System) probably until 2016. In 2012, China promised that the system would facilitate international transactions via cross-border clearing, which is the clearing of credits and debits applied during interbank payments. While transactions are easily regulated within China, their international clearing is entrusted to multiple people. Clearing banks and offshore centers perform a central role. Over the last few years, Beijing has built a web of accords—based prevalently on politics—that leverage competencies that China cannot yet boast. The underlying strategy is clear in the definition, but obscure and difficult realize: transforming the renminbi into an acceptable international currency. Liberalizing its movements, which would facilitate payments, is critical to this ambition. Chinese intermediaries holding renminbi must be certain of being able to use them. The first attempts were carried out in greater China, through agreements with banks in Hong Kong, Taiwan, and Singapore that accepted payments in Renminbi, to then obviously reemit them into their financial systems.

The results were relatively promising. The Chinese currency climbed to 7th place as a vehicle for payments most used in the world for the exchange of goods and services according to Reuters and the financial source, Swift. In any case, it was still not congruent with the second largest global economy’s dimensions. Its weight and availability was accepted by offshore centers that nominated themselves to facilitate the renminbi’s clearing, which was recently negotiated with financial centers in London, Frankfurt, Luxembourg, and Seoul. To extend the quantity of transactions, it’s necessary to enlarge the base of users. For this reason, the CHIP was hypothesized. As always, the deferment has political and technological motivations. We do not know whether the Chinese administration doesn’t wish to or doesn’t know how to proceed. The two explanations probably coincide and converge. The technological complexity of the operation is excessive for China’s experience, which is evidently not capable of overcoming this obstacle. The number of Chinese consumers tied to the possibility of transferring their savings overseas is unquantifiable. It’s very likely that the authorities will lose control over transactions, which could become unmanageable and could subject the renminbi to undesirable market shocks. China has, therefore, postponed an experiment that would have modernized it because it is still not ready and competent. Ironically, in this way China still seems like a prisoner of international banks and the dollar’s tyranny. The former, leveraging hundreds of years of experience, manage the renmini’s movements profitably and securely as an oligopoly. They offer clearing and attract huge amounts of capital. China could have reduced its dependency, but it’s not capable of handling the technical challenge. Furthermore, international intermediaries continue to privilege the dollar in exchanges for its easy acceptance. China is afraid of losing control over its currency. It’s understandable, but it’s not helping the country become a reputable center for international finance, and thus remains confined to its specialization in the production of goods.

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About Alberto

Alberto Forchielli, born in 1955, received an MBA with honors from Harvard Business School and a bachelor’s cum laude in Economics from the University of Bologna. He is a founding partner of Mandarin Capital Partners, and the founder and president of Osservatorio Asia, a non-profit research center focused on Asia. He is also the founder of T-Island, a consultancy agency specialized in international relocations for professionals. In addition, he guided the expansion of the Roland Berger Foundation to Italy, which provides individual support for talented students lacking means to further their educations.